Local impact of the federal interest rate drop
SPRINGFIELD, MO. — The Federal Reserve announced they were cutting the federal interest rate by half of a percent this week.
That doesn't come as a shock that there would be a cut to Richard Baker, who leads Fervent Wealth Management.
It's the amount that caught him off guard.
"We were expecting the Federal Reserve to lower rates on this session, but we were surprised by how much they lowered it. We were expecting a quarter percent and they did a half percent, and that's significant. So we're concerned that the Federal Reserve may be concerned about the market going forward," Baker said. "The economy overall is starting to slow down. So job reports starting to slow down. Retail is starting to slow down. We just had a report come out on Tuesday that showed retail across America, that of the 13 different areas, only five of them were positive. Just last month, ten of them were positive. The businesses in America are starting to have less business and business is slowing down. So Fed Reserve's trying to do is trying to spur the economy before it falls into a recession."
Baker doesn't believe we're approaching a recession yet, but the slashed rate is a step to help prevent it.
"I don't think we're there yet. We all knew that it was always going to drop rates. We were surprised by the significance of the rate. So a half percent was much larger than we anticipated up until four or five days ago. Everyone, all the analysts were thinking it was going to be a quarter percent. So [with a ]jump to a half, it makes us think what does the Fed Reserve know? What are they concerned about?" Baker said. "They're trying to spur people to spend money, to put money into the market. What they're hoping to do is to lower mortgage rates and to spur people to start borrowing more, to buy houses, build houses or build homes or things like that. That's the overall goal, but it takes a little bit of time. It's not a quick fix. It doesn't get to affect anything in the next week. It could take six, nine months for things that really are happening."
Relator Jacob Perry says that could open up options for buyers in a market that leans towards sellers.
"Any time it becomes cheaper to buy a home, you notice more people wanting to purchase," Perry said. "More people are going to take advantage of it being cheaper to purchase at all."
Perry says there are about 1,300 homes for sale in the Greene, Christian and Webster county areas, where a 'balanced' market would have around 2,000 homes available.
When the interest rate was going up to curb inflation, that would price people out of homes that originally would have been affordable since the price would increase as the interest rate increased.
"Usually when the Fed cuts rates, it could take a couple of weeks or a few months for that to translate into our local markets and for us to start seeing maybe even more of a rate drop," Perry said.
Perry's client Ashley Burris says the cut is good news for her.
"I mean, it does help a little bit. I think it could potentially make it like $100 less down mortgage payment, so I mean it definitely does help. It's better than the other way around," Burris said. "It's not substantial, in my opinion."
She says she had had issues in the past with finding a home that suited her and her family's needs while making sure it wouldn't put them in a financial bind.
"There was a house in a neighborhood that we just really always loved and would like to buy, but because of the interest rates and just the pricing and stuff like that right now, it's not what we think it would normally be worth," Burris said. "Seven years ago what you could afford versus what is out there now because of the interest rate, it's just nearly impossible. I mean, you're paying double or triple for the home just because of the interest rate."
Baker says homes aren't the only thing to take advantage of as the rate drops.
"Those who have loans, who have lines of credit, credit cards, those rates should go down, that should make it easier," Baker said. "On the other side, those who have savings, who have CDs, savings accounts, they're going to see their interest rate, their earnings per month are going to drop."
He adds there are more cuts on their way.
"I think people who are looking for a home, who are stuck in a high-paying rental situation, things are starting to look better. The Federal Reserve is expected to drop the rate again in November, probably a quarter percent again in December, and then possibly for more times next year," Baker said. "I think now it's going to be cheaper next week than it was two weeks ago, but I think it can be even better, probably in spring when the housing market picks up, should be a lot better sometime spring."
